Cost of Inflation INdex

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Sathyamurthy.N (Querist)
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11 June 2009 Hi,

Who is the issuing authority of Cost of Inflation Index and broadly based on which criteria it is fixed?

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
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11 June 2009 Cost Inflation Index(CII) is a measure of inflation that finds application in tax law, when computing long-term capital gains on sale of assets. Section 48 of the Income-Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year.

How does CII help in capital gains computation? Capital gain, as you know, arises when the net sale consideration of a capital asset is more than the cost. Since “cost of acquisition” is historical, the concept of indexed cost allows the taxpayer to factor in the impact of inflation on cost. Consequently, a lower amount of capital gains gets to be taxed than if historical cost had been considered in the computations.

Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost.

For example, if a property purchased in 1991-92 for Rs 20 lakh were to be sold in A.Y. 2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh. And the long-term capital gains would be Rs 21.51, that is Rs 80 lakh minus Rs 58.49 lakh.
Cost Inflation Index

Cost inflation index (CII)as notified by Central Government is as under:

Financial Year
(CII)

1981-82 100

1982-83 109

1983-84 116

1984-85 125

1985-86 133

1986-87 140

1987-88 150

1988-89 161

1989-90 172
1990-91 182

1991-92 199
1992-93 223

1993-94 244

1994-95 259

1995-96 281

1996-97 305

1997-98 331

1998-99 351

1999-2000 389

2000-2001 406

2001-2002 426

2002-2003 447

2003-2004 463

2004-2005 480

2005-2006 497

2006-2007 519

2007-2008 551

2008-2009 582

2009-2010 Not yet Notified